The Advantages of Having a Budget.

For many years now, I’ve witnessed the effects of debt, credit cards, personal loans, car loans and the like becoming increasingly difficult for people to manage. The unfortunate part of my job is the limited help I can offer people to reduce and eliminate this debt. It is becoming a cancer in our society and there are many different reasons why you could argue that this is a problem today.

One common factor I see in my day-to-day job is the lack of an organised budget. Most people seem to live week to week, month to month, struggling to meet their financial commitments whilst living a reasonably comfortable existence let alone save money. I very rarely see savings accounts with the balance over $500 and certainly see minimal deposits. Most people use a savings or cheque account for their income to be deposited and then just watch that balance reduce until the next pay cycle. Whatever happened to a separate account for “true savings”?

The knowledge in the “basics” is where I believe we need to bring this back to. The 50\30\20 budget is not even heard of these days. Were you ever taught to split your income three ways? 50% to financial commitments, including most living expenses, 30% for groceries and entertainment and 20% to a savings account.

Coming from Generation X, my recollection of any school education relating to finance was simply learning how to write a cheque and a deposit slip for a savings account. Very little time was spent on managing an income and your financial responsibilities. Algebra and Pythagoras seemed to be more important and just like every other generation since, we questioned when we would ever use algebra in day-to-day life. I don’t believe that would’ve been the case if we were learning about savings, credit and spending money.

Moving on, what is in a budget? Well I believe it depends on the individual and their personal circumstances but as a general rule of thumb I like to stick to the 50/30/20 split. There are many tools available on many different sites including government sites that can help you start and manage a budget. Obviously the most important of all is making sure you are living within your means. There is no point in taking out a loan for a new car if you can’t afford the repayments on your current car facility and especially if there are no savings in your account. Savings are one of the most important overlooked financial commitments that we should make a priority. Having savings means avoiding using credit for emergencies or holidays or big ticket items. Let’s be realistic, watching that little balance grow is an incredibly rewarding feeling.

Next month, I’ll cover what I think is the best strategy when making up a new budget. What you should consider when putting your budget together and also some money saving tips that might help you boost your savings.